Navigating the New Compliance Landscape

During the COVID-19 pandemic, the compliance landscape has evolved with new regulatory changes posing numerous new challenges for businesses across all sectors. Similarly, the impact of the pandemic on the global economy and the economic uncertainty which has resulted, has forced businesses worldwide to adapt to new market conditions as they seek to ensure ongoing business survival.

These changes are occurring at a time of increased scrutiny from governments and regulators, but also from the general public who want to ensure that businesses are acting responsibly in the current changing environment.

As a result, there are significant obligations and additional pressures upon businesses. In this unfamiliar climate, businesses need to be aware of the new risks and challenges posed by the pandemic, and be able to adapt swiftly to new and/or heightened risks resulting from new market conditions and the ever-changing regulatory landscape.

Businesses need to ensure that their compliance programmes are robust, resilient, and adaptable so that new and/or heightened risks can be mitigated adequately by internal processes, policies, and controls.

 

How can businesses navigate the new compliance landscape?

It is important that businesses constantly monitor the changing regulatory landscape and fully understand the risks to which they are exposed, and respond in a timely and comprehensive manner. To do so will involve the business:

 

Identifying the key compliance risk areas to which they are exposed

As new guidance and legislation is implemented, companies must react in real time to a changing risk landscape. It is crucial that companies have a thorough understanding of the new risks posed in their business sector and respond accordingly. Some key risks are identified below:

  • Budgetary constraints and a reduced workforce - As businesses face economic pressure, they may find that their risk and compliance functions are operating with reduced budgets and staff, impacting upon their ability to conduct adequate compliance checks, monitoring, and screening across all business operations. It is important that companies guard against such risks and adapt practices to ensure that compliance is maintained at all times. This may mean, for example, using technology more to ensure effective communications and messaging, and considering whether responsibility for certain compliance matters can be shifted deeper into the business.
     
  • Reduced mobility and travel restrictions - With government lockdowns and travel restrictions, businesses are less likely to be able to conduct on-site visits and maintain face-to-face contact with employees and third parties. So far as possible these practices will need to be undertaken remotely presenting additional hurdles for businesses as they seek to monitor operations and investigate any allegations of potential misconduct.
     
  • Supply chains – Supply chains have been, and are likely to continue to be, adversely affected by future lockdowns and travel restrictions, leading businesses with little alternative but to onboard new suppliers to ensure business operations and to safeguard business continuity. It may be that the urgency and pressures upon teams to ensure ongoing business continuity may lead individuals to bypass company processes and procedures when conducting due diligence, prioritising financial gain over compliance, and potentially exposing a business to new risks. It is important that companies guard against such risks, and continue to undertake risk assessments and remind employees of the importance of due diligence in all cases.
     
  • Adjusted risk appetites - Companies in financial distress may become less risk averse so as to ensure business survival, however, they must continue to stay alert to how their risk appetites are evolving and the implications that such changes will have upon their business. Any adjustments must be communicated to staff to ensure that they are familiar with company practices and continue to adopt a compliance culture across business operations.
     
  • Increased interaction with public bodies/officials - In response to the pandemic, governments and public bodies have provided, and continue to provide, emergency financial packages to support companies and individuals during the crisis. In such circumstances, companies must ensure that the funds are used appropriately and in accordance with government guidance to avoid any future allegation over the misuse of public funds.
     
  • Corporate social responsibility (CSR) initiatives - With the increased social and ethical demand for companies to assist those in need in times of crisis, and to act urgently, there is a potential risk that company funds could be diverted for illegal and/or unethical purposes. Companies should therefore continue to adopt appropriate due diligence on potential CSR initiatives to ensure that all CSR programmes and charitable donations comply with company policies, and to reinforce such policies and procedures with employees, where necessary.

Ensuring that internal policies, processes, and controls are adequate to the risks identified

As new risks are identified, and new guidance and legislation is introduced, businesses need to ensure that they monitor and review internal policies, processes, and controls to ensure that they are comprehensive, are responsive to new market circumstances and regulatory changes, and reflect the changing risk landscape. This may require consideration of the following:

  • Tone from the top - Senior management should be active in promoting a culture in which corruption and unethical conduct is not accepted, and that they continue to communicate their company’s commitment to carry out business fairly, honestly, and openly.
     
  • Communication - Companies must communicate any risk adjustments to employees promptly, ensuring that they have an appropriate understanding of their obligations and act accordingly. Companies must encourage employees to report any suspected or actual misconduct and have in place appropriate whistleblowing procedures that protect the whistleblower from repercussions, whilst ensuring that any suspicious or actual wrongdoing is addressed promptly and effectively.
     
  • Due diligence - At a time when companies may need to use alternative business partners owing to travel restrictions or reduced budgets, companies must ensure that counterparty due diligence and other on-boarding procedures are not overlooked. This will involve: (i) conducting new risk assessments on third parties and partners; (ii) adjusting internal policies and controls to account for new or heightened risks; (iii) reminding employees of the importance of conducting thorough due diligence throughout business relationships; and (iv) monitoring the results of the due diligence.
     
  • Monitoring and review - Companies must continue to monitor and review their policies, procedures, and practices throughout the pandemic to ensure that they accord with all regulations and guidance and adapt to forthcoming changes in a prompt and timely manner.

Ensuring integrity underscores a company’s corporate governance strategy

Whilst company values that underscore a well-developed compliance programme are an important starting point for businesses, it is important that due attention is paid to what employees, customers, stakeholders, and the general public consider to be appropriate corporate behaviour during the pandemic.

Throughout the crisis, the public has reacted with anger to news stories of companies reportedly adopting unethical business practices (for example, requiring workers to perform in circumstances that make social distancing impossible; and furloughing staff while paying out executive bonuses, etc.).

In contrast, favourable comments have been posted in respect of companies that have demonstrated ethical conduct and support for the community during the crisis (for example, providing time and resources to support community projects; repurposing their businesses to produce products to support emergency services, etc).

Given the public’s increasing scrutiny of companies’ behaviour, acting with integrity and adopting ethical practices is more important than ever before in ensuring business support and enhancing reputation (both internally and externally). It is advisable that companies pay close attention to what is considered “appropriate corporate behaviour” and how the company’s conduct will be viewed by employees, customers, stakeholders, and the general public.

Ensuring that progress made with compliance initiatives is not jeopardised during lockdown

While the importance of compliance has not shifted as a result of the pandemic, the attention and priorities of employees may well have done. Management teams and compliance officers must ensure that they maintain commitment to advancing their compliance initiatives, particularly whilst physically ‘out of sight’ owing to lockdown restrictions. Underscoring compliance initiatives within the business through communication initiatives will be imperative to business success. This may include:

  • Communications – It may be necessary to adjust communications so that instead of focusing upon the specifics of policies, they instead underscore the general importance of conducting business with integrity at all times. This will enable a company to ensure that compliance initiatives stay relevant and at the top of the business practices, whilst avoiding accusations that the company is pushing an out-of-date, pre-coronavirus agenda, which does not accord with the challenges currently faced by the business.
     
  • Training – A key way of communicating these messages is through training. The successful use of video-conferencing technology as individuals work remotely, means that training can continue, albeit in a digital format, and can now reach a much larger audience than ‘in person’ training.
     
  • Senior management - The involvement of senior management, both in terms of communicating business messages, and as part of company training, will help reinforce the importance of the compliance messaging, and demonstrate the tone from the top.

Conclusion

The global pandemic has brought about new challenges, economic uncertainty, and regulatory changes for businesses. Whilst companies must adapt to these new conditions, they must do so in a way that ensures that they continue to practice good compliance practices. There is no coronavirus defence for non-compliance so it is important that management and compliance teams continue to keep on top of their compliance agendas, regularly review and monitor the risks that their business face, and ensure that their business practices, policies, and procedures respond appropriately to these risks, maintaining business ethics and corporate integrity throughout their business operations.

 

About Fulcrum

Fulcrum is a highly specialised legal advisory and consultancy business comprising barristers, solicitors, investigators, and other high calibre professionals.

We have established ourselves as a market leading firm providing strategic legal advice, consultancy, and representation for governments, public bodies, corporates, and private individuals in the fields of financial crime, corporate governance, and risk and reputation protection.

We have been involved in, and continue to be involved in, the most significant and high-profile international corporate criminal investigations and prosecutions of the past decade, whilst acting as the trusted advisers to many corporates and other organisations in related areas.

Our work ranges from assisting with structural compliance tools, such as policies, procedures, training, compliance audit, through to conducting internal investigations, where there is a particular concern.

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